MERCY CORPS and AFFILIATES Consolidated Financial Statements and Supplemental Schedules June 30, 2014 (With Independent Auditors’ Report Thereon)
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MERCY CORPS AND AFFILIATES Consolidated Financial Statements and Supplemental Schedules June 30, 2014 (With Independent Auditors’ Report Thereon) MERCY CORPS AND AFFILIATES Table of Contents Page(s) Independent Auditors’ Report 1–2 Consolidated Financial Statements: Consolidated Statement of Financial Position 3 Consolidated Statement of Activities 4 Consolidated Statement of Cash Flows 5 Consolidated Statement of Functional Expenses 6 Notes to Consolidated Financial Statements 7–28 Supplemental Schedules 29 Schedule I – Supplemental Schedule – Mercy Corps Statement of Financial Position 30 Schedule II – Supplemental Schedule – Mercy Corps Statement of Activities 31 KPMG LLP Suite 3800 1300 South West Fifth Avenue Portland, OR 97201 Independent Auditors’ Report The Board of Directors Mercy Corps and affiliates: We have audited the accompanying consolidated financial statements of Mercy Corps and affiliates, which comprise the consolidated statement of financial position as of June 30, 2014, and the related consolidated statements of activities, cash flows, and functional expenses for the year then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mercy Corps and affiliates as of June 30, 2014, and the changes in their net assets, cash flows, and functional expenses for the year then ended, in accordance with U.S. generally accepted accounting principles. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity. Report on Summarized Comparative Information We have previously audited Mercy Corps and affiliates 2013 consolidated financial statements, and we expressed an unmodified audit opinion on those consolidated financial statements in our report dated November 4, 2013. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2013 is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived. Other Matter Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplemental information included in schedules I and II is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Portland, Oregon October 31, 2014 2 MERCY CORPS AND AFFILIATES Consolidated Statement of Financial Position June 30, 2014 With comparative financial information as of June 30, 2013 (In thousands) Assets 2014 2013 Cash $ 69,161 63,621 Financial instruments and derivatives, net 3,866 3,725 Grants and accounts receivable 15,985 11,679 Microfinance loans receivable, net 79,597 77,042 Due from unconsolidated affiliates, net 7,873 8,864 Inventories 5,833 7,503 Prepaid expenses, deposits, and other assets 7,049 6,720 Pledges receivable, net 2,512 955 Notes receivable 10,988 10,988 Investments 4,621 3,871 Program-related investments 5,352 6,562 Property and equipment, net 40,457 41,915 Total assets $ 253,294 243,445 Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 35,032 28,748 Deferred revenue 38,595 38,834 Subsidiary and subordinated debt for microfinancing activities 81,325 74,228 Long-term debt 24,312 24,330 Total liabilities 179,264 166,140 Net assets: Unrestricted 53,030 57,071 Temporarily restricted 21,000 20,214 Permanently restricted — 20 Total net assets 74,030 77,305 Total liabilities and net assets $ 253,294 243,445 See accompanying notes to consolidated financial statements. 3 MERCY CORPS AND AFFILIATES Consolidated Statement of Activities Year ended June 30, 2014 With summarized financial information for the year ended June 30, 2013 (In thousands) Temporarily Permanently 2013 Unrestricted restricted restricted Totals Total Operating support and revenue: Public support and revenue: Government grants $ 172,598 — — 172,598 159,667 Material aid 12,406 — — 12,406 11,099 Material aid – monetized 9,924 — — 9,924 9,200 Total public support and revenue 194,928 — — 194,928 179,966 Private support and revenue: Other grants 47,183 11 — 47,194 32,370 Contributions 22,623 13,336 — 35,959 25,020 Gifts in kind – services 574 — — 574 672 Total private support and revenue 70,380 13,347 — 83,727 58,062 Other revenue: Interest income 27,005 — — 27,005 27,468 Other revenue 1,067 — — 1,067 1,825 Total other revenue 28,072 — — 28,072 29,293 Net assets released from restriction 12,581 (12,561) (20) — — Total operating support and revenue 305,961 786 (20) 306,727 267,321 Operating expenses: Program services: Humanitarian assistance – relief 86,172 — — 86,172 62,074 Humanitarian assistance – recovery 15,678 — — 15,678 16,313 Livelihood/economic development 79,585 — — 79,585 83,952 Civil society and education 46,056 — — 46,056 43,900 Health 33,475 — — 33,475 25,619 Total program services 260,966 — — 260,966 231,858 Supporting services: General and administrative 33,411 — — 33,411 28,730 Resource development 14,490 — — 14,490 11,485 Total supporting services 47,901 — — 47,901 40,215 Total operating expenses 308,867 — — 308,867 272,073 Change in net assets from operations (2,906) 786 (20) (2,140) (4,752) Nonoperating revenue and losses net: Foreign currency exchange loss, net (2,566) — — (2,566) (932) Realized and unrealized gain (loss) on investments, net (808) — — (808) 536 Unrealized gain on swap agreements 1,743 — — 1,743 214 Other nonoperating (decrease) increase in net assets 496 — — 496 (171) Total nonoperating revenue and losses net (1,135) — — (1,135) (353) Change in net assets (4,041) 786 (20) (3,275) (5,105) Net assets at beginning of year 57,071 20,214 20 77,305 82,410 Net assets at end of year $ 53,030 21,000 — 74,030 77,305 See accompanying notes to consolidated financial statements. 4 MERCY CORPS AND AFFILIATES Consolidated Statement of Cash Flows Year ended June 30, 2014 With summarized financial information for the year ended June 30, 2013 (In thousands) 2014 2013 Cash flows from operating activities: Change in net assets $ (3,275) (5,105) Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation and amortization 4,210 4,332 Provision for loan losses 929 559 Net realized and unrealized loss on investments 3,206 429 Unrealized gain on interest rate and foreign exchange swaps (1,743) (214) Loss on disposition of fixed assets 1,578 226 Changes in assets and liabilities: Grants and accounts receivable (4,334) (259) Due from unconsolidated affiliates, net 991 (751) Inventories 1,670 (502) Prepaid expenses,